Offense and Defense – Playing Both Sides of the Investing Game

I love to have sports talks about GOATS like Michael Jordan and Muhammad Ali. On the investing side, I could listen to Warren Buffet and Charlie Munger all day. All of these big hitters can play offense AND defense when it comes to their games, businesses, and portfolios. I am writing this, to suggest you operate similarly, and make sure you are practicing the fundamentals. Does offense win games or does defense? I think it’s a combination of the two. A powerhouse portfolio of rentals can set you up well with some great income potential and give you tremendous opportunities. However, if your defense isn’t secure, you’ll get run over by other high-powered offenses: the government, tenants, bad financing, and many more. People get into real estate for a variety of reasons: Early financial freedom, escaping the rat race, financial stability, or maybe they just wanted to add a few headaches to your life haha. All in all, it doesn’t matter why you got into the game, I’m just glad you are in the game, consider this a firm handshake for taking a risk and betting on yourself. Now let’s get into it. Last issue, I wrote an article about ROI in this market and how to look at your current portfolio to get a great ROI in this market. Taking a step back to look at your offensive pieces such as this, is what a successful investor does. In this market, rising interest rates are something to keep in mind, and being in coordination with your banker/financing option is a key piece to being accurate in your analysis.

A few 10,000 foot offensive questions:

  1. Have you picked out an investment category? Most people do best if they focus on a single investment area, rather than flips, STR’s, SFH’s, and multifamily all at once. For example, I really like duplexes and small multifamily properties, that has been my focus the last few years since leaving the teaching/education field. The book “The One Thing” by Gary Keller and Jay Papasan is a good resource for this mindset.
  2. Can you analyze deals EASILY in your target investment area (if this is cumbersome or not systematized, this needs to be practiced and worked on, because knowing your numbers is YOUR JOB as an investor)?
  3. Do you have systems such as an analysis tool or process? This may include: a mortgage calculator, and outcomes such as expected cash flow, Cash on Cash return, and IRR, or other variables you deem important. Being able to accurately assess a building for what it is worth to you is vital. I use a google sheet, which makes it easy to use on the go at a property, or at my desk. The big thing here is to find something that works for you that is reliable and suits your needs.
  4. What are your buying metrics? Set these and stick to them, for example, I buy multifamily properties (usually duplexes), that cashflow, from people that are looking for an easy exit and are tired of upkeep of the property or dealing with tenants. I’m young and growing and I enjoy the before and after process on properties. If you want Lambeau rentals, double down on that and get crystal clear on what you want! Then go after it!

Many investors I meet are interested in the offense, and neglect the defensive side of investing. They look at outcome measurements such as how many doors they have, or total portfolio value, but have very little in terms of systems and structure, securing their portfolio and all the hard work they have put in. I’d now like to concentrate on a few defensive pieces to your portfolio, that go beyond having a lawyer, and LLC, blah blah blah.

A few defensive thoughts:

  1. Leases – when was the last time you had these looked over and reviewed by someone besides yourself? Sitting down with an investor buddy or vendor such as an attorney will help you stay up to date. What has helped you most? Where have your leases been weak in the past? Then adjust as needed.
  2. Keeping up to date on what’s going on in the market is defense in itself. This is why I like networking groups like WiscoREIA and the local apartment associations. An investing colleague of mine, Rick, said it best, “Individually, we can see down the hall, but as a group, we can see around the corner.” With the state of this market, it’s nice to have meetups once a month where I can get the thoughts of others. Some people shy away from these, and that’s totally fine, but I think it’s worth a shot. At a minimum, stop by WiscoREIA GB and I think you’ll be pleasantly surprised. Although I was a teacher, I can promise I won’t give you any homework or bore you by talking about the weather.
  3. Once you get more than a couple rentals/loans. I think it is very wise to space out when your loan balloons expire. My crystal ball is no better than anyone else’s, but I know that if I have 10 duplexes all coming due at the same time, and the market is very tough, financing could be very difficult to find. I wasn’t investing during 2008, but I have heard some horror stories, and want to avoid unnecessary turbulence.
  4. Speaking of financing, when was the last time you called around to a few banks to see what interest rates and products others were offering? Loyalty to a bank and banker can be beneficial, but I would at least say make sure you have a 2nd option. If this market goes crazy, options will be your friend. Leverage can help you build, but it can be a wrecking ball as well.

In summary, if you turn on the news, you will see a lot of fear and uncertainty. This may be the case, but get back to the fundamentals to drown out the noise. Basketball still is mostly, dribbling, passing, and running a system. Simply firing off 3’s all game will get you in trouble with an experienced opponent. The market can sometimes be this opponent. Don’t be afraid to get back to the basics and analyze your offense and defense. Go get yourself a W, and again, consider this a firm handshake for betting on yourself.

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